Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


Study shows value of innovation to manufacturers as outsourcing’s impact continues


Manufacturing competition

A new study of nearly 650 Georgia manufacturing companies underscores the importance of innovation as a competitive strategy – at a time when international outsourcing continues to impact Georgia’s manufacturing community.

The 2005 Georgia Manufacturing Survey shows that companies basing their competitive strategies on the development of innovative products or processes enjoy higher returns on sales, pay better wages and have less to fear from outsourcing than do manufacturers relying on other competitive strategies.

Georgia manufacturers that rely on innovation for their competitive edge reported returns on sales 50 percent higher than companies that compete by providing low cost products – a gap that grew substantially since the last survey in 2002. Innovative companies paid workers a third more than the average Georgia manufacturer and were 40 percent less likely to lose work to outsourcing than were companies competing on low cost.

The survey of Georgia manufacturers, part of a periodic study begun more than a decade ago, was conducted by the Office of Economic Development and Technology Ventures and the School of Public Policy at the Georgia Institute of Technology.

"Innovation, whether in products or processes, or in organization or services to customers, is one of the main paths through which manufacturers can become more distinctive, secure market premiums, satisfy customers, expand sales, reward workers and improve their bottom line," explained Phil Shapira, a professor in Georgia Tech’s School of Public Policy and a study co-author. "Companies that do not continuously innovate will find themselves under increasing pressure from low-cost producers in the United States and globally."

Offering innovative products gives companies a competitive edge that provides protection against outsourcing and allows them to charge a premium – which creates higher margins and allows higher wages, notes Jan Youtie, a researcher in Georgia Tech’s Office of Economic Development and Technology Ventures and another study co-author.

"If a company competes on the basis of innovation, that usually means only a few other companies are offering similar products," she said.

After launching its iPod music player, for example, Apple Computer was able to charge a premium – and still commands a majority of the market. And Google has maintained a competitive edge by continuing to offer new products that build on its market-leading search engine, Youtie noted.

But innovation isn’t limited to products and processes. Companies can also compete using innovative marketing strategies and organizational approaches, she said. Aflac’s talking duck, for instance, provided a marketing innovation that helped the company stand out in the crowded health insurance market.

"The benefits to innovation are pretty much across the board for companies in quality of goods, variety of goods, market share, increased capacity, reduced time for product delivery, improved production flexibility – and reduced inputs of materials, labor and energy," she noted.

But there are barriers to innovation that involve costs, capabilities and risks that may keep some companies away.

"It’s not just a matter of money," Youtie said. "There are also issues with having qualified personnel to undertake the innovation, seeing the need in the marketplace, and overcoming a concern that innovative products cannot penetrate markets dominated by established companies."

The relatively low priority placed on innovation doesn’t bode well for the state’s manufacturing community.

"Without more innovation in Georgia, manufacturers abroad will steadily out-compete us by having better products and more efficient processes," Shapira warned. "This is a particular concern for Georgia’s base of small and mid-sized companies. While we have many excellent small firms in the state, we lack the large base of innovative, specialized and flexible small manufacturers seen in some other advanced industrial economies."

Fewer than 8 percent of companies responding to the survey chose to compete on innovation. However, a much larger percentage applied innovation to products and processes that were part of other strategies. The survey found that nearly half of Georgia manufacturers had introduced a new or significantly improved product between 2002 and 2004. Branch facilities of companies headquartered outside the state had the highest rate of new product introduction.

Those new products can quickly become important. The average manufacturer introducing new-to-the-market products reported that those products accounted for nearly 20 percent of sales. Nearly 12 percent of innovators reported that their new products accounted for 50 percent or more of sales.

While innovation has traditionally been considered the business of large high-tech companies, Youtie noted that firms of all sizes – and in all technologies – can benefit. Traditional industries such as food processors can innovate in product packaging and marketing, while apparel and carpet firms might apply new finishes – perhaps based on nanotechnology – to differentiate their products.

Though small companies may lack the innovation resources and networks of larger competitors, they can often make decisions and implement changes more quickly, Youtie noted.

The study found that returns on sales ranged from more than 6 percent for companies competing on innovation to less than 4 percent for companies competing on low cost. The breakdown of competitive strategies chosen included:

  • Providing high quality products and services (53 percent);
  • Offering the lowest price (20 percent)
    Adapting products to customer needs (14 percent);
  • Providing quick delivery of products or services (12 percent);
  • Including value-added services with products (10 percent);
  • Developing product innovations and new technology (8 percent).

Totals add to more than 100 percent because some respondents indicated more than one top competitive strategy).

The percentage of companies competing on the basis of low cost declined from 27 in 2002 to 20 percent in 2004. Youtie and Shapira speculate that’s because many companies using that strategy have simply gone out of business. "Low price will bring in more sales for a while, but it’s hard to keep that up," Youtie noted. "You have to compete with companies in countries with even lower cost structures."

For decision-makers, the study’s implications are clear. "Firms, industry associations, universities and state and local policymakers all need to be involved in new efforts to stimulate many more of our small, mid-sized and larger industrial enterprises to invest in the innovative strategies that will help them not only to survive, but also to grow," Shapira said.

Other findings of the 2005 Georgia Manufacturing Survey included:

  • 18 percent of Georgia manufacturers lost work to international outsourcing between 2002 and 2004. "Outsourcing is a real concern now, and I expect it will continue to affect Georgia manufacturers," Shapira said. "Some of the firms that took part in our 2004 survey will not be in businesses in the state, or will have fewer employees, when we repeat our survey in 2007."
  • About 12 percent of manufacturers gained "insourcing" work from facilities elsewhere in the United States. While that shows Georgia continues to be competitive within the nation, it raises concern if that competitiveness stems only from low wages, Shapira cautioned.
  • 48 percent of manufacturers identified concerns with human resources, up significantly from the 2002 study. While earlier surveys found concern about availability of skilled workers, more than a quarter of the 2005 respondents had problems finding workers with basic skills – up from just 11 percent in 2002. Despite the concern, however, 20 percent of the respondents made no investment in worker training.
  • Nearly 40 percent of manufacturers reported lean manufacturing concerns, an increase from 2002 statistics.
  • Nearly one in five companies reported concerns about energy costs and conservation – even prior to the recent storm-related energy cost increases.

The survey was sent to approximately 4,000 Georgia manufacturers that had 10 or more employees. Completed surveys from 648 manufacturers were weighted to reflect employment and industry distributions.

The Georgia Manufacturing Survey is conducted periodically to assess the condition of Georgia’s manufacturing industry. In addition to the authors already named, Georgia Tech School of Public Policy Graduate Students John Slanina, Jue Wang and Jingjang Zhang provided research assistance for the 2005 study.

The project was supported by the U.S. Department of Commerce’s NIST Manufacturing Extension Partnership, the U.S. Economic Development Administration, the Center for Paper and Business and Industry Studies at Georgia Tech, the Georgia Department of Labor, and the QuickStart Program of the Georgia Department of Technical and Adult Education.

Technical Contacts: Jan Youtie (404-894-6111); E-mail: ( or Phil Shapira (404-894-7735); E-mail: (

John Toon | EurekAlert!
Further information:

More articles from Studies and Analyses:

nachricht Diagnoses: When Are Several Opinions Better Than One?
19.07.2016 | Max-Planck-Institut für Bildungsforschung

nachricht High in calories and low in nutrients when adolescents share pictures of food online
07.04.2016 | University of Gothenburg

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Etching Microstructures with Lasers

Ultrafast lasers have introduced new possibilities in engraving ultrafine structures, and scientists are now also investigating how to use them to etch microstructures into thin glass. There are possible applications in analytics (lab on a chip) and especially in electronics and the consumer sector, where great interest has been shown.

This new method was born of a surprising phenomenon: irradiating glass in a particular way with an ultrafast laser has the effect of making the glass up to a...

Im Focus: Light-driven atomic rotations excite magnetic waves

Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion

Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...

Im Focus: New 3-D wiring technique brings scalable quantum computers closer to reality

Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.

"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...

Im Focus: Scientists develop a semiconductor nanocomposite material that moves in response to light

In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.

A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...

Im Focus: Diamonds aren't forever: Sandia, Harvard team create first quantum computer bridge

By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.

"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...

All Focus news of the innovation-report >>>



Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

Agricultural Trade Developments and Potentials in Central Asia and the South Caucasus

14.10.2016 | Event News

World Health Summit – Day Three: A Call to Action

12.10.2016 | Event News

Latest News

How nanoscience will improve our health and lives in the coming years

27.10.2016 | Materials Sciences

OU-led team discovers rare, newborn tri-star system using ALMA

27.10.2016 | Physics and Astronomy

'Neighbor maps' reveal the genome's 3-D shape

27.10.2016 | Life Sciences

More VideoLinks >>>